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The Greening of Business.

The Economist has a 15 page report on the role of businesses in addressing the climate crisis. After discussing the frenzy of silicon valley investment and the fossil fuel industry in renewable technologies, the piece gets to a critical point:

Yet business’s new enthusiasm for clean energy is a fragile green shoot in a dark landscape. Much could happen to crush it. A sustained fall in the oil price, for instance, would undermine investment in costlier, cleaner technologies. But the bigger risk is political. Businesses are investing in alternatives to fossil fuels because they assume that carbon emissions will be constrained in the future. If governments do not act to curb emissions, those investments will eventually wither.

The question remains: how should governments act? Their are two principle actions (excluding the ever-popular, sit on their hands and do nothing), as I see them, not necessarily contradictory:

Put a price on carbon.

Re-invest government dollars.

Putting a price on carbon is harder to pull off economically and politically, but also has the greatest impact. Much debate exists between establishing a cap & trade system (in which countries agree to a cap of greenhouse gas emissions but with the ability for some countries to exceed the caps by buying credits from countries who have reduced their emissions below target levels) and instituting a carbon tax. As the Economist points out:

A carbon price can be established either through a tax or through a cap-and-trade system, such as the one Europe adopted after signing up to Kyoto. A carbon tax would be preferable, because companies would then be able to build a fixed price into their investment plans; but businesspeople and politicians are both strangely averse to the word “tax”. A cap-and-trade system can be made to work, but the price has to settle at a level that affects commercial decisions. Europe’s hasn’t: the price has been too volatile, and, for much of its existence, too low, to shift investment patterns much.

The United States government, of course, has done neither, though local and regional communities across the United States have instituted their own systems.

There’s a lot of debate amongst environmental groups and on capitol hill as to which approach–cap & trade or carbon tax–is the better way to go. Al Gore supports a carbon tax and proposes to pay for it by cutting payroll taxes. Others, namely Environmental Defense, support a market-based approach.

Personally, I believe a carbon tax would have far greater immediate and long-term impact but I’m also a realist and have a hard time envisioning a political environment wherein we have leaders in Washington, D.C. who have enough of a spine to fight for this. After all, our current Congress can’t even find the guts to insist on Iraqi timetables for withdrawal, despite the fact that a significant majority of Americans favor troop reductions. The only hope is a presidential candidate with enough charisma and vision to present a carbon tax as part and parcel of a rebuilding of American industry, security, and job creation. Not holding my breath here. Are you?

Now, wait a second… maybe there’s hope. While the auto industry–rapidly becoming as much of a fossil as the fuel its cars burn–is busy funding ads against plans to raise CAFE (Corporate Average Fuel Economy ) standards, Edison Electric Institute, the trade association for American utility companies has endorsed regulation. You read me right:

Attitudes in corporate America have changed in part because a federal system of controls has come to look like the lesser of two evils. America’s states have already started to legislate to cut emissions… For companies, a diverse patchwork of state-wide systems is much harder to cope with than a single nationwide system. According to Ken Cohen, vice-president of public affairs at Exxon Mobil, “we need a uniform and predictable system. If the states are left to their own devices, we won’t get that. It needs to be a federal system.”